PayPal faces class action threat

Person-to-person payment operator PayPal is being sued for unnecessarily restricting, freezing or closing accounts and making it difficult for customers to resolve complaints.

The federal lawsuit, which is seeking nationwide class-action status, was filed in a San Jose court on behalf of three individuals. It follows the recent filing of a patent infringement lawsuit against PayPal by New York-based PKI company CertCo.

The new legal challenge took the shine off an earlier optimistic statement by the company that it expects to escape threats from state banking regulators to close the system down unless it obtains a money transmisstion license.

PayPal has been publicising a letter from the FDIC which points out that the email-based money transfer service does not actually handle any customer funds - implying that the company should therefore remain free from the burden of banking regulations.